What Happens if a Mortgage Application Gets Rejected?

Buying a new home can be a really exciting process, but it can also be pretty nerve-wracking. One of the most important parts of the entire process is securing your mortgage. If your mortgage application gets rejected, however, this can be really disappointing and a major setback.

A rejected mortgage application need not be the end of the road, however. In this article, we are going to talk about the reasons why a mortgage application may be rejected and what you can do to move forward from it.

Why have I been refused a mortgage?

There are a number of possible reasons why you may see your mortgage application rejected. If it happens to you, you should try and find out which ones have been applied to you. Bear in mind that each lender has its own set of criteria when assessing a mortgage application. Because of that, the same application rejected by one lender may get approved by another.

Whilst not an exhaustive list, here are some of the common reasons why mortgage applications get declined:

• Poor credit history
• Recent missed or late credit payments
• A County Court Judgement (CCJ) or other adverse judgement on your record
• Large amounts of existing debt
• A large number of credit applications in the past six months, resulting in multiple hard searches recorded on your credit report
• Not registered to vote on the electoral roll. This is important. It allows lenders to check some of your personal information and to link that in with your credit history
• Failed the mortgage affordability assessment based on your current income and expenditure
• Self-employed or a contract worker with insufficient proof of consistent income
• Mistakes or inconsistencies on your application form and in supporting documentation, such as the incorrect address or spelling of names. Perhaps the payslips provided don’t match up with the claimed annual income
• Insufficient deposit available
• Failing to meet the income criteria for the size of type of mortgage applied for
• You’ve lived in the UK for less than three years

Can a mortgage be declined after a mortgage in principle?

When you begin the mortgage process, you may obtain a mortgage in principle, or ‘agreement in principle’ from a mortgage lender. This is given to provide confirmation that a lender has agreed ‘in principle’ to provide you with a mortgage. This is subject to the information you have provided being verified and the property you want to purchase being suitable to lend against.

Having a mortgage agreement in principle can be really useful to have under your belt when you begin househunting. Not only does it give you an idea of what you can afford, but it also provides comfort to estate agents and sellers that you are in a good position to make an offer. Some estate agents and sellers may even refuse you a viewing on some properties unless you have a mortgage agreement in principle available.

That being said, a mortgage agreement in principle is not a formal mortgage offer. It does not guarantee that you will be granted a mortgage. It is possible for the lender to reject your application after further consideration and an inspection of all of the supporting information which they will require you to provide.

If your mortgage application is declined after you have been issued with an agreement in principle, then you should try to find out the reason/s for this. Lenders are not obliged to give any explanation for their decision. However, most will provide some feedback if requested.

A mortgage agreement in principle is issued on some fairly basic information provided by the applicant. An applicant will state how much income they earn, how much they feel they can afford in repayments and confirm that their credit history is good. This information is taken on trust by the lender and forms the basis for their mortgage offer in principle. To then take this to a formal offer, the applicant will have to provide a full application along with evidence to back up their statements. This is often where problems arise.

Perhaps the applicant was not entirely honest about having a good credit history. Perhaps there is adverse information recorded against them that they are unaware of. Maybe they over-stated their income and included occasional overtime or bonuses in their basic salary. Once a lender is in full receipt of all the applicant’s information, they will undertake a detailed assessment. They consider whether the applicant has been honest, is a good risk and should be able to afford to repay the mortgage facility that they are being asked to provide. Only then will they make a formal mortgage offer.

Find out more – ‘What is a mortgage agreement in principle?’

Does a mortgage rejection affect my credit score?

Technically no, the mortgage rejection itself won’t affect your credit score. However, each mortgage application (and any other application for credit, such as loans, credit cards or store credit) will leave a hard search on your report – and having numerous hard searches can affect your credit score, usually in a negative way.

This is because lots of credit applications within a short space of time can be an indication that you are relying on credit or that you are having financial issues. They are a signal to lenders that you may be a higher risk. Therefore, if a mortgage lender sees multiple hard searches on your report, they may assume that you are struggling financially or being rejected by other lenders, which will, in turn, raise a red flag.

Any applications for credit stay on your file for a maximum of two years. With that in mind, it’s a good idea to avoid applying for too much credit in the months ahead of making a mortgage application.

Find out more – ‘How does bad credit affect a mortgage?’

My mortgage application has been rejected – now what?

Don’t panic. Yes, a mortgage application rejection may slow down your home-ownership plans, but it’s not the end of the road. Try speaking to the mortgage lender to find out why you were refused. It’s not always easy to get a specific answer, but it’s well worth a try. This could help you to address any issues and improve your application for the next time around.

However, don’t rush into trying again. One of the worst things you could do is immediately apply for a mortgage with another lender. As we mentioned, another rejection and an additional hard search on your credit report may damage your chances further.

Instead, speak to a mortgage advisor and broker such as us here at Mortgage Light. As experts in the mortgage market, we can help you pinpoint any issues. We can guide you on the right path to success. When the time comes to apply for a mortgage again, we can match you with the most suitable lenders and contact them on your behalf to give you the best possible chance.

In the time between your rejection and your next application, make yourself as attractive as possible to future lenders. Try and pay off any existing debts. Keep up with your regular payments, paying them on time and in full. It’s also worth checking for any errors on your credit report. You can get them removed or corrected by the creditor in question.

Perhaps you were stretching your finances a little too much the first time around. Could you use this time to increase your deposit amount or find a home that’s less expensive to reduce your borrowing? Again, speaking to a mortgage advisor and broker will help you work out what is realistic based on your financial situation.

Lastly, you could consider utilising a government scheme such as the Help to Buy Equity Loan scheme or the Shared Ownership scheme. With these schemes, the amount you’ll need to borrow in order to purchase a home is smaller. Less borrowing generally means less risk to the lender and your chances of being accepted may be greater than purchasing the traditional way.

Find out more – ‘Is shared ownership a good idea for first time buyers?’

 

If you have been rejected for a mortgage, it’s time to turn to the experts to help you move forward. At Mortgage Light, we are always on hand to offer a friendly face and helpful advice to those struggling to make the next move.

Just get in touch with us on 01908 597655 or contact us via our website.